Crimes of Persuasion

Schemes, scams, frauds.

LAYERING TECHNIQUES OF MONEY LAUNDERING

The amount of energy and expense that will be put
into an effort to multiply the levels of cover and obscure the
trail will depend on an assessment of how serious and effective
police probes are likely to be in that jurisdiction.

Tax Havens and Offshore Banks

Launderers tend to move their activity to jurisdictions where
there are few or weak money-laundering countermeasures.

A main
resource in money-laundering are the financial havens and offshore
centres which started out as a business to service the needs of
a privileged few.

An "offshore bank" can be a bank anywhere
in the world that accepts deposits solely on behalf of non-residents.

While we generally think of the Caribbean when referring to offshore
banks there are dozens of locations right around the world which
are just as accommodating.

Offshore banking centres are home to more than
$5,000 billionin assets - $1,000 billion in bank deposits and
$4,000 billion held in the form of stock, bonds, real estate
and commodities.

The Cayman Islands, for example, one of the most
important offshore jurisdictions, is generally judged to be the
fifth largest financial centre in the world behind London, New
York, Tokyo and Hong Kong. There are over 570 banks licensed
there, with deposits of over $500 billion.

During the last decade, many countries, drained
of foreign exchange and with limited natural resources
and no prospects of significant economic opportunities, have
realized gains in economic and financial strength by becoming
safe havens for foreign tax and law evaders.

They freely offer low or non-existent tax rates
that are attractive to investors, company owners and ordinary
citizens anxious to reduce their tax burdens for they do not
regard tax evasion in another country as a crime.

These havens
also offer tools, available only to non-residents and only to
be used offshore, which are designed to defeat the laws of other
countries.

Bank Secrecy Laws as a Layering Tool

In many cases, these havens enforce very strict
financial secrecy, effectively shielding foreign investors from
investigations and prosecutions from their home countries.

Money-laundering can still occur without bank secrecy
and some depositors actively avoid it precisely because it acts
as a red flag.

Professional launderers advise their clients that
the only really effective form of secrecy is keeping their mouths
shut.

Corporations and Shell Companies as a Layering Tool

Any reasonably sophisticated money launderer will
establish a bank account in a financial haven as a corporation
rather than as an individual with a "numbered account".
To increase the appearance of legitimacy it is preferable that
such a company already have a history of actual activity.

Once
the corporation is set up, a bank deposit is then made in the
haven country in the name of that offshore company.

The incentive for businesses to be registered in offshore havens
is to escape the severe tax and registration regulations on domestic
companies.

They can funnel large amounts of capital to and from
offshore countries without the need to declare the transactions
to domestic fiscal authorities.

On the condition that it do no business where
it is set up, having an international business (IBC) or "offshore" corporation
enables its owners to act with complete anonymity and not pay
taxes.

In many jurisdictions it is not even required to
keep corporate books or records and thus is perfect for concealing
the origin and destination of goods in international commerce.

Companies can even be capitalized with bearer shares, so that
while there is no owner on record anywhere, the person who physically
possesses the share certificates owns the company.

Use of Trusts as a Layering Tool

In many jurisdictions, trusts and IBCs are administered
by unregulated trust companies. Many laundering schemes then
devise another layer of cover where control of the company is
transferred to the offshore trust.

The trustees then simply give
the owner instant access and control over the assets while hiding
true ownership.

The unregulated trust companies can help conceal
assets by moving the shares of a corporation from one account
to another, by changing corporate names, by merging corporations
and by changing trust documents on the instruction of the account
holder.

They have also been known to manufacture false
paper trails and false documentation to assist money launderers
and they have routinely provided invoices, receipts and other
documents to help fool the customs and tax authorities of other
countries.

Offshore trusts may have an additional level of
insulation in the form of a "flee clause" that compels
the trustee to shift the location of the trust whenever the trust
is threatened by war, civil unrest, or more likely, the activities
of law enforcement officers or litigious investors and consumers.

Use of Walking Accounts as a Layering Tool

In some instances, criminals will open an account
in one jurisdiction but with instructions for any incoming funds
to be transferred immediately to another location. Additionally,
the bank will be instructed that, in the event of inquiries,
bank officials in the second location must be informed.

Once
they are informed, they in turn have instructions to transfer
the money elsewhere.

These schemes, known in law enforcement circles
as "walking accounts", pose serious problems for efforts
aimed at seizing dirty money.

The first account is simply the initial depository,
and money moves in to it and then immediately moves out.

The
function of the account is, essentially, to act as an early warning
mechanism to identify any inquiries by law enforcement and to
set off further countermeasures to protect the money.

Establishing a Self-Owned "Instant Bank" as
a Layering Tool

The trail can be further complicated if the launderer
purchases their own "instant bank" in one of several
jurisdictions that offer such facilities.

He then just makes
sure that his "bank" is one of those through which
his money passes so he can either close the bank or destroy the
records to evade authorities.

On just one of the haven islands there are approximately
300 banks operating with only about ten actually maintaining
physical banking offices there.

The others are operated by management
firms for absentee owners or exist only as accounts in other
banks.

Use of Intermediaries as a Layering Tool

Money launderers frequently use various lawyers
along the route so that they will also be protected by the confidentiality
of the lawyer/client relationship.

There is also an increasing
reliance in offshore centres on brokers and agents to generate
customers, to act as intermediaries in establishing accounts,
trusts, and the like, and to act as an additional layer of insulation
and confidentiality.

These professional launderers include accountants, lawyers and
private bankers who, while offering money-laundering services to
a wide range of criminals, are adept at not asking
questions that would require them to refuse business or even to
report their clients or potential clients to the authorities.

They are aware that those who fail to comply with
professional "best standards" might be liable under the "want
of probity" principle.

Some offshore financial institutions will generate
false invoices, bills of lading, end-user certificates and other
forms of documentation to give the appearance of legitimacy to
a variety of illicit transactions.

Over-invoicing using false
documents can be an excellent cover for moving the proceeds of
drug trafficking and other crimes, while false invoices, bills
and receipts can be used for a variety of tax frauds.